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BRANCH BANKING | Staff Reporter, Japan
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MUFG's restructuring to add 7bps to its profitability

The reorganisation is expected to increase pre-tax profits by around US$43b.

According to Moody's, Mitsubishi UFJ Financial Group, Inc., Japan’s largest banking group, announced that it will reorganise its group management structure, including transferring Mitsubishi UFJ Trust and Banking Corporation’s corporate loan business to sister bank The Bank of Tokyo-Mitsubishi UFJ, Ltd. in April 2018. This transfer of loans, which involves more than ¥12 trillion (US$107b) of loans outstanding, is credit positive because it will improve profitability by creating operating cost synergies.

Here's more from Moody's:

Consolidating lending operations at BTMU will allow MUTB to focus on its core trust banking operations, which include various trust services relating to money trusts, pension trusts and investment trusts, and to offer other services relating to real estate, stock transfer agency and testamentary services. MUFG will change the name of BTMU to MUFG Bank, Ltd. starting 1 April 2018 to unify the brand names of its three major subsidiaries, which include a commercial bank, trust bank and securities operations.

In addition to the loan transfer to BTMU, the restructuring will involve MUTB converting Mitsubishi UFJ Kokusai Asset Management Co., Ltd. into a wholly owned subsidiary by acquiring the 34% stake in MUKAM held by Mitsubishi UFJ Securities Holdings Co., Ltd. and the 15% stake in MUKAM held by BTMU. MUFG has expanded its asset management and fund administration services business organically through MUTB and via a series of acquisitions in the US and Asia to increase fee income to help overcome the challenges created by negative interest rates its home market.

MUFG aims to double its assets under management from overseas investors, which will create greater economies of scale and triple the amount in overseas investment trusts over the three years ending 31 March 2018. We consider this expansion credit positive, given the business’ relatively low earnings volatility and compared with either traditional retail or investment banking, and expect that that these fee businesses will positively affect profitability.

MUFG estimates that the reorganisation will increase pre-tax profits by approximately ¥300 billion (US$43b), including ¥120 billion from cost savings and ¥180 billion from higher revenues, by the fiscal year ending 31 March 2024. We estimate that this will add approximately seven basis points to MUFG’s profitability, as measured by net income/tangible assets, assuming an increase in net income of approximately ¥210 billion and tangible assets of ¥300 trillion.

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